Dai-ichi gets $725M for Citigroup Center.

Boston Properties, Inc. led a partnership that acquired the 59-story, 1.6 million SF Citigroup Center for $725 mil lion, the firm announced.

The trophy space occupies nearly a full block between Third and Lexington Avenues between 53rd and 54th Streets. Boston Properties, along with Richard and Eric Hadar's Allied Partners, bought the building from Dai-ichi Life Investment Properties, Inc., a Japanese insurance company.

Boston Properties completed the purchase through a joint venture with Allied Partners, which invested $35 million in common equity. Boston Properties has invested the balance of approximately $195 million in common equity and the rest in preferred equity.

All of Boston Properties's equity will earn a 10% priority return for ten years. The preferred equity -- and any accumulated unpaid portion of the priority return on Boston Properties's equity investment -- will be payable from cash flow plus proceeds of any refinancing of the property before Allied's affiliates receive a return on their common interest, according Boston Properties's rather windy explanation of the sale. According to a published report, Deutsche Bank will provide a $525 mil lion mortgage.

One executive close to the deal said, when translated into English, it's a pretty sweet deal for Allied Partners.

"They got a 35 percent stake for $35 million," said the executive, who asked not to be identified. "If the property ever needs more capital, for whatever reason, [Boston Properties] must put up the money at the same 10% rate. No matter what happens, Allied won't have to invest another dime."

The building was opened in 1978 by Citibank. In the 1980s, Citibank sold two-thirds of the property and one third of their former headquarters at 399 Park Ave. to Dai-ichi for $670 million. In November 2000, Dai-ichi signed a deal to buy Citibank's remaining third while Citibank would buy Dai-ichi's interest in 399 Park Ave.

The executive added that one of the key reasons for the deal and its timing is the strong tenant roster during queasy times. The building is fully leased to mostly blue-chip tenants paying an aver age of $54 SF.

"That's really what makes: the deal so attractive for the buyers. It's one of the best assets in the country with income from a tenant roster that is all credit; all solid. Citibank has the base of the building for the next 15, years, so when space does open up it will be in the tower part of the building. With the views offered in the tower, they can obviously charge much more [than $54 SF]."

Last week's sale ends a period of intense arm-twisting between Boston Properties, the Hadar family and several of their partners. The Hadars were in negotiations to buy the center during the winter, but a threatened lawsuit over 1 E. 57th St., which the Hadars sold last winter, filed by some of the Hadars' partners initially nixed the deal.

In fact, the $725 bid that was accepted by Dai-ichi matches the amount offered by the Hadars in February.

"We are delighted to complete the acquisition of Citigroup Center, an irreplaceable landmark asset in Midtown Manhattan, one of the most supply-constrained office markets in the country," said Mortimer B. Zuckerman, chairman of Boston Properties, in a statement released by the firm. "With its high visibility on the New York City skyline and its high-quality tenant roster, Citigroup Center will be a flagship property in the company's portfolio."

It almost didn't happen. The Hadar group, upstarts in the real estate mogul game, might have gotten the prized building all to themselves. Richard and Eric Hadar, who are father and son, bought 1 E. 57th St. for $57 million last year and agreed to sell it to LVMH Moet Hennessy Louis Vuitton for $200 million. The hefty profit would have made a handsome down payment on the Citigroup Center (which in turn would have been a convenient tax shelter for the profit) but apparently their former partners, Blue Chip Emerald LLC -- who were bought o t at a rate they claim was closer to the purchase price than the sale price -- felt swindled and have filed a $180 million suit. So the Hadars went partner-hunting, and Boston Properties entered the picture. As news of the lawsuits b came public, Boston Properties announced in a March statement that it would buy the building with the Hadars or without them. That they bought it with them, an executive close to the deal said, probably says a lot about the industry's opinion of the suit.

The end result is that the Hadars got to roll over their E. 57th Street profits into the Citigroup Center, and thus avoided a devastating tax bill, and Boston Properties got its fourth class A building in the neighborhood, which complements 599 Lexington Ave., 875 Third Ave. and 280 Park Ave.

And then there's the seller.

"Dai-ichi is extremely pleased with the outcome of the sale," said Thomas R. McClayton, managing director of LaSalle Investment Management, a division of Jones Lang LaSalle. "In the end, Dai-ichi sold its two-thirds stake in the building directly to the buyers and assigned to them its contract with Citibank for the additional third. By structuring the deal this way, Dai-ichi realized a purchase price of about 15 to 20 percent higher than it would have without the swap with Citibank. In addition, Citibank was able to accomplish its goal of owning 100 percent of its world headquarters at 399 Park Ave."

The Citigroup Center is fully leased, with Citibank leasing more than half a million SF on 18 floors. Other tenants include Apple Computer and Ziff Brothers Investments, and its retail center includes a Barnes and Noble and a Houston's Restaurant.